DayTrading - An Extreme Sport!

Okay this post I am putting up since one of my friends from a yahoogroup asked about the link I have in the right hand side called 'Basic Nifty Intraday Trading System' and how to use it.So I thought I will devote a post to this.

If you click on this link - It will take you to a yahoo intraday nifty chart which has parabolic SAR, slow stochastics and MACD histograms added to it. You can play around with this chart to add in more indicators and parameters.

Now see my title above :-) --> Daytrading is really an 'extreme' sport :D. It can be compared to maybe extreme sports such as bungee jumping..lol.

Before I start out let me just say this method of trading will offer a lot of excitement, exhilaration, fear, downright panic...In other words a cornucopia of emotion - Stay away if you cannot handle it. I know a lot of friends who do not make any money but they still stick to day trading - Why? - Simply because daytrading makes them feel like somethin! I tried it, made some, lost some and then just decided it is not worth it - It does not fit my personality - This is very important. A trader needs to keep searching for timeframe, indicators, method until he finds something that completely 'fits' his emotional makeup. I have found that daytrading is NOT for me. Positional works for we very well - Especially if I keep the leveraging to a minimum. But thats just me. Some people will do very well in daytrading so you can try it out a few times - Be sure to try with a contract or 2 only and check it out. Believe me very very few daytraders ever make money consistently. Very few NORMAL traders do that but daytrading kinda skews the picture even further.

Ok now to the chart. :-)



Now if you see above, I have marked the inflection points on the slow stochastics indicator which tells us when to buy and sell. A crossover of the blue above red tells us to buy and a reverse tells us to sell. This will work very good on trending days and you can get 2 or 3 good moves. The rest of them will tend to be whipsaws. The parabolic SAR(stop and reverse) is a indicator/method which tells you where to set your stop. You can tighter stops in most situations but that depends on the trader. Since the profit margins for a daytrader is very less - You need to make sure you use tight stops and be very nimble.

This chart is obviously not what a good day will look like...Infact you get much better trending days than this quite a lot of times but more than often you get a whipsaw day and this is really the bane for most day traders.

Try this paper trading for a while and see if it works out before launching into real trading.

Ask me questions if any in the comments section and I will try to address.

Best.

Poll Interpretation

For the last 10 days or so I had a poll posted up here trying to get sentiment for the month of May...Thanks to all who voted. I expected much higher participation since the daily traffic to this site is on average 150 unique people. Please do vote in future polls - This can create a significant tool for us - And I will put up interpretations on this and as we go forward we will be able to utilize this data more in determining market sentiment and direction.

Now coming to the poll I had put up for the month of May.
38% was bullish
58% was bearish
3% was neutral

I guess the sample size is way too small to make any such conclusions on this.
But I think above shows that majority is bearish as that is why the market is not going down too much...In other words, it looks like market is very light in terms of speculative positions and this kinda makes it less prone to sudden crashes or declines...Now one thing to not here is that as time was going by, the bullishness kept increasing and this was the major drawback of the poll. I need to close the poll much quicker and maybe reduce the time period.

This has got significant value in trying to get a handle on market sentiment and when used with context it becomes an invaluable tool. For example, after the big decline in Jan, if we had checked sentiment I would not be surprised to see 90% bearish. And this will be very bullish. Over time we can get a better handle on this.

So please vote. From this week on I will open weekly polls - Each Friday market close it will open, On Monday before market opens I will close it and post interpretation on the same.
And we can compare with market moves and see how it works. This thing will take time but I think it can be a good tool.

Please vote...

Best.

Week Recap - May 16th 2008

I am sorry I could not post yesterday as was very busy trading for most of the time and then was very tired so called it a night...I did some trading around on my positions..i.e closed shorts at the open lows, held the hedge calls until 5150 or so, closed this also and went short again in small amounts only. Debated with myself on whether it is a wise thing to hold the shorts into the long weekend then decided I will. I took around 50 points(considering the hedge) net loss on my shorts that I closed....Traded around it to reduce it to this levels but still overall a good week for me considering the good profits I made in earlier part of the week and also last week.

The uptrend SO FAR has been weak and choppy which is why I am thinking this is more corrective than impulse which means atleast a revisit back to the lows is possible. Make no mistake, if we go and sustain above 5180/5200, it will be the first red flag for me and above
5220/5250 I will no longer try short and I will even give the bullish case a chance...Somehow I am not feeling confident enough to become a bull yet.

Something I wanted to say here is, please do not get carried away by what I post sometimes...Always do your own due diligence when taking positions and above all, please do not take on large positions you cannot manage. Trading successfully is not an overnight get rich scheme...we need to work hard...there will be bad trades, there will be good trades...Taking small positions ensure we dont pay for the bad decisions we make. So please whenever I post a position, I hope you all will think and make up your own decision when taking the trade.

Because of above I feel a bit guilty nowadays posting trades here...I mean if it goes good everyone is happy but nowadays this blog has got 150-200 visitors in a day....So to all be judicious and take your own decisions. It is very easy to get swayed by other's thoughts...I dont know how many times this has happened to me and I miss out on perfectly good trades. Read the charts and trade...The market is supreme. No one else is. Period.

I will post hourly, daily, weekly charts later on with my comments.

Have a good weekend all....

Best.

Market Update - May 15th 2008

Not posting a chart today...Nothing much to say on charts.

To me this looks like a short squeeze from hell. Not going to stand in its way anymore...Will close shorts, take the loss like a man and will post this sometime today(I will micromange this little bit with the hedges so that the loss is kept as low as possible) . One thing to note here is that tomorrow is US OPEX(option expiry) week which typically means that the market is held up by the big guys during this time...So be cautious of longs.

Today we get a gap up and then need to see if it sustains...Also we are going into the long weekend. It will be interesting to see who will blink first - Bull or Bears.

I will get out and watch before making any decision. Most probably will go flat into the long weekend. We will see next week. I did not have such a bad week even with this trade I am on now...But this is only because of the hedges I have in place - This is why I encouraged doing this so much.

Have a good trading day.

Best.

5060 Important support to watch

Close longs(if you are long) and go short if we break it...I am still holding shorts..Total avg price is 5045...Not feeling very good about it...But decided to hold for a day.

Best.

Adding More

Adding more shorts at this level...NF 5052....I donno if I am wrong and am fighting the mkt at this point now...Pls comment if you think I am wrong....

50% short now.

Best.

Market Update - May 15th 2008

Chart attached above. I dont have much to report on the chart except that uptrend still looks like it is protected by the uptrend line. But to me it looks like this will fail soon...Only question is when?....On the upside, watchout for price rejection and selloff - 5050, 5150, 5180 are important numbers to watch out for in coming days if it even gets that far. On the downside 4920 is the most important support. 4960 and 5000 area is also important as supports.

Position Update - As you know I shorted in small amounts yesterday...Down by about 30 points but since I have the hedge and the position is quite small, I am okay with this.

Today, I will probably look to add to shorts so I am at 50% position.

Best.

How Important is TA in Your Trading or Investment Methodology?

Wanted to post a discussion on this for quite some time but never got around to it.

Ask yourself above question..And note down the answer. Then read below.

Technical Analysis, Chart reading, Chart skills etc account for JUST 30% of our trading success. This might come as a shock to most people reading this but that is all. Even if you know very basic TA, you can still work your way around in the market.

Now what are the 2 other parts that are most important in your trading technique?

- Money management and/or Position sizing
- Pshycological wellbeing within yourself and with the market

Many a time we spot a perfect setup in the chart and we know if we take it, we will succeed in making a truckload of money...But after the trade is over, we realize we made a lot of big mistakes and the setup that just could not go wrong went wrong big time and you lost a truck load of money instead of making it.

Why?

To quote Dr Alexander Elder(read the book 'Come into my Trading Room' - Will be useful for both novices and veterans alike) - Successful Trading consists of the 3 'M's -
Mind
Money
Method

Mind - This is psychological wellbeing. If you have fear, hope or greed clouding your judgement, you need to get out or just dont take the trade. In other words we need to be as mechanical as possible when doing trades. Keep emotion totally out of the markets. They just do not go together. Sometimes we become very emotional due to the amount of money we have hanging in there and in cases like this, do not put so much money in. I know of many ppl who are successful when trading very small amounts or are excellent paper traders but it comes to actual money, they fail miserably...This kind of ties in with the next M.

Money - This is the art of money management and position sizing. i.e for your amount of capital, you should know how much you should leverage or risk. There is no real or easy answer to this. You need to know what is your risk level. And what is the reward potential. You should know your risk-reward ratio in order to know whether the trade is favourable.
Also always be ready to cut your losses and run. Be always ready to admit you are wrong.
A retail investor having a capital of 2 lakhs, engages in trading 1000 option contracts or 500 Future contracts is asking for sure blowup of the trading account.

Now all of above will seem very boring to most but money and risk management techniques are the most important thing you can ever learn in relation to trading. The rest will follow.

Method - The 3rd M. This is technical analysis and charting. This is what most sites, tutorials, gurus etc focus on and they rarely give importance to above. Why? Simply because they know that this is interesting...People begin to calculate what their potential profits are on seeing a setup...But they rarely ever calculate potential loss...This is the weighing of risk and reward and determining if a trade is likely to succeed.

Please note - I am not saying the art of TA is not importance..It is very..But it is only a third of the overall picture. So read up on money management and work on improving your emotional setup and wellbeing...Believe me it will be time well spent.

Best.

US Market Crappola!

:-D

What a day today for US markets...Almost a perfect bull trap....Gap Up...Hold the gap till the last 45 mins and then sell off...Beautiful!

Now seriously speaking this is a bearish pattern that has formed today...There is also a wedge looming out there....Will it mark a significant top or is it just normal profit booking? I do not know for sure...But all the signs are there for a significant pullback to happen...

See chart above...I have indicated 2 important things here....First the obvious double top potential and the resistance line. The next one is volume - see how the volume came back today after a couple of low volume days - And see how quickly the downmove came...Its treacherous out there.

Overall today painted a bearish picture...We need to see if we get continuation.

Lets wait and watch..Will put up my Indian Market updates and some other articles soon.

Best.

May 14th Trading Day - A Review

Okay I admit yesterday was not a very good day for me...I said in earlier posts that generally after having a long string of winning trades, I have a loser like this one...This is why I trade hedged - It reduces profit potential but keeps me afloat.

Coming to yesterday again, it was a tough day to trade...and ICICI made things worse. I know I know bad worker blames the tools but I cannot help but say, if I managed to cover my shorts and flip long as I was meaning to do...at the lows of the day, what a difference it would have been....Trading is a intense pshycological game...And discipline and a straight mind is required...Whenever you find hope, fear or greed crowding your judgement, you should just close out the trade.

ICICI being down in the morning and me missing out on a potential 50+40 NF points both ways made me upset and as a result I could not trade properly...Anyway whats done is done...I am shifting over to Indiabulls from now....ICICI just lost an actively trading customer. Cheers.

Coming to my position now....Yes we went higher...I am not too worried about this since as I said its a very very small positions and before taking it also I knew it was a high risk one since a short squeeze was expected....However I think we might be setting up for a good short point at higher levels a little later....

There are a few things I need to analyse on the charts and also want to watch US market action today before making any decision on my position.

The way I see it, I might do one of the following - Either add to the shorts at higher levels or cover and run...At this point, I dont have a big desire to go long...I think I will wait for some more time before taking positional longs...

Best.

Short Again - Very very small amount

Short probe again...NF 4985. Hedged with 5000 calls. Will add later.
Going to sleep guys...Mostly probably no more updates today.

Please note that this is a high risk trade - take it at your own risk.

EDIT: Adding some more here...30% short now

Best.

Finally out

Finally managed to cover...Stupid ICICI...I cant stop venting about them....Missed out on a good 30-40 NF points here....But this is the last trade with them.

I wanted to go long at the lows but now will wait and watch...Might not do anything else today.

Best.

Man oh Man!!!

Damn ICICI to hell...I want to cover my shorts and this thing is down...Thats it...today is the last day for me on this stinking thing....Shifting totally to Indiabulls...

Cover shorts if you can for now.

Best.

Market Update - Wednesday May 14th 2008

After several good trading days, I tend to get a bit wary of the next few trades I take...So I will be very cautious for some time. The past few days have been a blast for me and should have been for whoever was following my trades.

What next? Again not sure...So will play it as it comes...I am thinking that today could see some initial weakness, then some strength(may be small strength only) and finally some weakness again....This is basically based on my feel of the market and then guesswork so take it with a pinch of salt...So regd my positions, likely I will close then on the morning weakness and then short higher...I might not go long at all unless the daily stochastics turn up in a few days...However I will wait for today's market action before making any decisions on next steps.
Watch this blog as I will be providing real time positional updates.

Coming to the hourly, comments on the chart..Whats funny here is that it looks like its broken the channel already...But I would watch for bouncebacks from earlier lows...4920 area i.e
This will probably be my target to cover shorts.


Now daily...See my comments on chart. The uptrend line is still in play. We CANNOT completely rule out the bullish case unless we breakdown from this - When this happens, it will sure be a sight to behold...But I will probably wait for some more time to short in size again ...As I said before I will cover my shorts today sometime in good profits ;)

Best.

Bingo!

Right on target with my trading and comments yesterday that even I was surprised ;)

I said we could have strength beginning of day and weakness later on...Which is why I built shorts into the strength as we moved along....The breakdown we got from there was only a matter of time....

Since I started this blog, I have given 4 or 5 calls/trades and all of them except for one 20 pt loss were good winners...Overall net of 300-400 NF points - And this is a conservative estimate.
Folks, it just does not get any better than this!

Next what happens could be very interesting...It could be make or break for the markets now so I am in 2 minds whether to close my shorts and try shorting again higher or keep holding...I will post comments later with charts after I get a chance to do some more analysis.

If you like this site and my analysis, please show your appreciation by -
1. Telling your friends about it.
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I want to keep this site rolling for as long as I can....And by doing above you will help me keep this at this quality and standard and better than that....Totally free...

Best.

India VIX and how to read it....Plus some charts

Quoting NSE:
Volatility Index is a measure of market’s expectation of volatility over the near term. Volatility is often described as the “rate and magnitude of changes in prices” and in finance often referred to as risk. Volatility Index is a measure, of the amount by which an underlying Index is expected to fluctuate, in the near term, (calculated as annualised volatility, denoted in percentage e.g. 20%) based on the order book of the underlying index options."

India VIX is a volatility index based on the Nifty 50 Index Option prices. From the best bid-ask prices of Nifty 50 Options contracts, a volatility figure (%) is calculated which indicates the expected market volatility over the next 30 calendar days.

Now the very important thing to note here is that the VIX is a contrarian indicator. Higher readings show the fear factor while lower values indicate complacency esp among the public. There is really no upper or lower limit so this is often used as a contrarian sentiment indicator.

Why is this indicator considered contrarian?...Simply because of the fact that retail influences the value the most....After all Fear and Greed are what drives the stock market.

A picture is worth a 1000 words...See chart below for the US market VIX and how it marks important tops and bottoms. For us, we need obviously need more data to reach more accurate conclusions of what is HIGH and what is LOW for the VIX.




Now look at a similar chart of our market...Now I apologize for the quality over here...I did not have much to work with and this mostly a makeshift chart I created after a lot of effort....VIX is below and NIFTY is on top....You can see how high values on VIX mark the bottoms on NIFTY. To me it looks like 20s is a complacent value for the VIX and anything from mid 30s to upper 40s indicate fear and above 50 indicates panic....Btw, VIX was in 30s yesterday showing some fear...Unfortunately I do not have all the data below but I think it shows you how this works....Watch the VIX....It is an important weapon to add to our arsenal.

Best.

Adding some more shorts

Right here...Market looks dicey...No clear direction YET....Though bias looks for UP now....Adding shorts...Still not short in full size...Now around 50% short...I repeat that this is a high risk trade so do not take it if not comfortable..5050 and 5100 look like important levels both upside and downside.

Best.

Position Update

Covered Longs....Into small shorts....NF 5043...I may be early...Which is why I am moving in very short amounts only.

Best.

Market Update - Tuesday May 12 2008

Wow what a day...It doesnt get more violent or exciting than this...However days like yesterday are the ones that have the capacity to wipe you out...Unless you practice real trading discipline. I for one did not even know that there were important numbers coming out - This is the importance of technical analysis and sticking to your trading plan. After I saw the big drop, I checked the news to see the shock news....Needless to say I was scared....As I said in earlier post I turned out to be quite early....If I had been a little bit more patient, I would have gained an extra 80 NF points or so - Both my short and long....I guess this is a problem a lot of traders have - Being trigger happy and overtrading a lot of times....Well...I guess for me it turned out okay yesterday...Cant win em all!

Coming to today....First the US market - Todays big gain came on very low volume....I dont like it one bit...It is distribution? I think it might be....Looks like they are pushing it up on very light volume...I have said this before - This is very very dangerous because when the volume finally comes in, we can accelarate to the downside....

When reading charts, 2 things are the most important - Price and Volume. Everything else are just derivatives of these!...Its surprising how many traders ignore this and try to find the holy grail of indicators which believe me just does not exist!

Okay now coming to our market today. I expect today we will get a flattish kind of day...Maybe some early strength and weakness later on...I am not very comfortable with the longs I took yesterday...So I will try to exit them at decent profits and then build shorts.....Again I stress, I will start in very very small amounts and then build on that...Ofcourse I will be hedged with options in the opposite direction.

Chart for today and comments added.

If you see above chart, where yesterdays decline stopped was almost picture perfect...We need to have a trading plan and stick to it...Keep emotions out...I simply cannot stress the importance of this...As I said before looking to exit longs today and build shorts slowly over the next couple of days....For today 5000/4980 on lower side and 5100/5150 on upside is very important.

Have a good trading day.

Best.

PS: If you have any comments or suggestions on this site or on how I can make this better, please mail me at princely.k.mathew@gmail.com

I saw all the good comments and thank you for that...Please understand if I do not take time to respond to each and every one of them but I am reading them and I appreciate the same....

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1. Telling your friends about it.

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Best.

Position Update - Monday May 12th 2008

Out of shorts as per plan and into small longs...NF 4970...Hedged with Puts. Lets see what happens. If we break 4900 on NF, I will cover and run ;)

Edit: Looks like I was early...I need to be more patient...However still thinking we get a bounce...But market is weak...Have stops.

Best.

Nifty Short Term Update - On the Brink - May 12th 2008

Well folks, we are very close to the 4950 area which I forecasted we would reach sometime back...Chart updated and attached with some comments...The channel needs to hold for the bullish case to remain alive. It is very probable that we will have a short term snapback higher sometime during the day.

4950-4930 area is key today. The bulls will try to hold this at any cost.

Postional Update - Shorts which I took on Friday highs - I will probably cover these sometime today and go long in very very small amounts. I will try to post this in real time when I do so.
Make no mistake, markets are still weak but a bounceback can happen - Infact looks very likely unless some very bad news comes out.

Have a good trading day.

Best.

Elliot Wave Counts and Ideas

I thought I will spend some time in this post to outline where I think we are in terms of elliot wave in the longer term picture...The counts are far from clear but there are some things that we know for sure and this should be able to shed some light on future moves and what we can expect to come...

As I explained in an earlier post, Elliot wave says that there are 2 types of waves...The impulse or the bullish wave which consists of 5 waves - 3 UP and 2 DOWN - and the corrective wave or the bearish wave which consists of 3 waves - 2 DOWN and 1 UP. And these waves will keep reiterating in any timeframe.

Now let us look at the longer term EW picture.



If you see above chart(click on it to make it bigger or right click and open in new window), the mega bullish wave started sometime in late 2001 from 800 levels....In between we had corrective waves of 2 and 4 and the whole impulsive structure looks to have terminated last January at around 6350 levels. Fibo retracements tell us where we can expect the current ongoing correction to end....Above is a log chart and you can see that what we have seen so far is nothing and possibility for much more downfall is there....50% retracements stands at 3660 area and 38.2% retracement stands at 4330 area. Very unlikely case of 61.8% retracement stands at 3000 area.

One thing is for sure...We are correcting the multi-year bull advance from 2001. So it is not realistic to expect that the corrective will end so fast and we will enter a new bull wave....It is very likely that the Big C downwave is yet to come.

However I will look at the bullish possibility first before moving on to the more likely bearish possibility. Either way it looks to me like now is not the time for long term investing and better to ONLY trade for now....

First lets look at the shorter term bullish possibility...

Here I have marked that the ABC correction is over and that a new bullish wave has started. For this to remain valid, 4950(+or - few) CANNOT be taken out to the downside and the new wave should start upward. If it is taken out, it means that this is just a corrective wave and we will see C down coming in the near future.

And that brings us to our big bearish possibility...I am kind of favouring this for now...

The chart and moves are self explanatory.

Okay now let me say one thing - All above charts and expectations are very speculative only and I dont think we can trade based on these...I just wanted to present the bigger picture and what I see happening...For trading, let us just follow day to day moves and possibilities....

So again I stress, above is all quite speculative and is mainly for entertainment purposes...For trading, I do not use elliot wave EXCEPT to have a very high level guideline...For trading, channels, MACD, Moving averages, Stochastics and so on should be used....Elliot wave when used in conjunction with these tools become much more powerful.

Please leave comments.

Best.